Florida Workers’ Compensation Joint Underwriting Association May 2013 Committee Meeting Reports
May 17, 2013
Several Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) committees met on May 15 and 16, 2013. Click here to view the meeting materials. Reports on each meeting follow:
FWCJUA Rates and Forms Committee approves $7.8 million policyholder dividend
During a very brief meeting on May 15, the FWCJUA Rates and Forms Committee voted to approve a $7.8 million premium dividend for policy year 2006.
It was noted that the dividend is calculated using a 10 percent underwriting gain retention versus all of the underwriting profits for the year. The net dividend declaration includes a $10 per policy distribution expense.
Payment is allocated among the Tiers as follows:
- Tier 1–$1,310,520
- Tier 2–$2,942,412
- Tier 3–$3,617,340
Next, the Committee voted with no discussion to recommend that the FWCJUA Board of Governors (“Board”) authorize FWCJUA staff to finalize a draft letter to the Florida Office of Insurance Regulation (“OIR”) outlining a program to eliminate the FWCJUA’s 2012 Subplan D deficit through May actuals. The Committee agreed the letter should be submitted no later than August 1, 2013.
Because the FWCJUA had a $64,763,931 surplus in 2012, it is not statutorily required to submit a deficit elimination plan to the OIR. However, with Subplan D posting a $272,077 deficit, the Board had previously agreed to update its plan to eliminate the individual rating plan deficit and submit the plan to the OIR. FWCJUA staff proposed that the filing should be based upon the Subplan D cash flow model updated through the May actuals, which will be available in mid-June.
The Committee then unanimously agreed to recommend that the Board confirm booking the 2013 losses utilizing the latest 2013 filed rate changes, along with the loss ratios indicated from the loss experience evaluated as of the prior year-end adjusted for the 2013 first reinsurance layer annual aggregate deductible (AAD).
The loss ratios are:
Rating Tier Projected 2013 Net Loss Ratios Projected 2013 Gross Loss Ratios
Tier 1: 37.1 percent 42.1 percent
Tier 2: 44.6 percent 50.6 percent
Tier 3: 53.3 percent 60.5 percent
Finally, the Committee voted unanimously to recommend that the Board adopt proposed OIR revisions to the FWCJUA Operations Manual to be filed for OIR approval as soon as practicable.
Changes include some revisions in wording relating to usage of the FWCJUA Web site, as well as a detailed listing of endorsements that require special attention. Those are:
- Assessable Policy Notice
- Tier and Premium Surcharge
- Florida Limited Other States
- “If-Any” Policy Notice
- Experience Rating Modification Factor
- Assigned Risk Adjustment Program (ARAP)
- Name Change
In Part Six of the Manual, which relates to coverage and rating rules and procedures, the section entitled “Exemption and Election of Coverage” was revised to read “members of Limited Liability Companies will now also be automatically be covered under an FWCJUA policy — in addition to corporation officers of a corporation — unless the employer files the proper exemption of coverage.”
With no other business before the Committee, the meeting was adjourned.
FWCJUA Committee Approves Investment Policy Revisions, Extends Investment Manager Contract
At its meeting on May 15, 2013, the FWCJUA Investment Committee confirmed guidelines for the organization’s investment portfolio and also approved revisions to its Investment Policy Statement and Guidelines. The Committee agreed to retain FWCJUA investment manager Prime Advisors for a second year.
As part of the agenda, Mindy Berg of Prime Advisors reported on the state of the investment market, explaining that rates last year at this time were affected by economic conditions similar to current ones. These conditions are improving, but were adversely impacted by recent uncertainty in Greece and Italy.
The 10-year U.S. Treasury yield was 1.68 percent on April 30, 2013-down slightly from 1.76 percent on December 31, 2012, Ms. Berg stated.
“We are considered to be in an employment recovery, but that recovery is considered to be quite weak,” Ms. Berg told the Committee. Negatively affecting the recovery are U.S. fiscal issues, sequestration, taxation, and global turmoil.
“Tailwinds or positive influences on the economy include an accommodating Fed, the housing market recovery, corporate profitability, and improved equity markets,” she said, also noting that the U.S. Federal Reserve has two main goals – to keep inflation intact and drive employment. In 2013, approximately 119,000 jobs were added per month, down from the expected 200,000.
After hearing Ms. Berg’s update, the Committee reviewed the April 2013 end-of-month report, noting any FWCJUA portfolio changes, bond purchases, bond sales and maturities, watch-listed holdings, portfolio holdings, and investment guideline compliance. After a brief discussion, the Committee unanimously affirmed that the portfolio is consistent and compliant with the FWCJUA’s Investment Policy Statement and Guidelines. Holding and monitoring all credit risks was recommended.
The Committee then heard a report on proposed revisions to the Investment Policy Statement and Guidelines, after which members voted to recommend their approval.
The changes revise the Investment Policy Statement as follows:
- The FWCJUA’s investment manager is provided with limited discretionary authority to opportunistically reposition securities within the FWCJUA portfolio.
- Prime Advisors and FWCJUA staff recommended setting the following initial annual limitations for 2013:
- Maximum Net Capital Loss: $100,000
- Maximum Net Capital Gains: $200,000
- Maximum Portfolio Turnover: Five Percent
- The maximum allocation to corporate securities is increased. A commercial mortgage-backed security component was added to the approved asset allocation list.
- Prime Advisors recommended that the maximum allocation for corporate securities be increased to 60 percent and that a new asset class, Commercial Mortgage-Backed Securities, be added with a 10 percent maximum allocation.
The Committee also approved its 2013-2014 tentative meeting schedule:
- Tuesday, August 13, 2013 10:00 a.m. to 11:00 a.m. Quarterly Teleconference Meeting
- Wednesday, November 13, 2013 10:00 a.m. to 11:00 a.m. Quarterly Teleconference Meeting
- Thursday, February 13, 2014 10:00 a.m. to 11:00 a.m. Quarterly Teleconference Meeting
- Wednesday, May 14, 2014 10:00 a.m. to 11:30 a.m. Quarterly Teleconference Meeting
With no further business before the Committee, the meeting was adjourned.
FWCJUA Audit Committee Approves Audit Report
During a brief meeting on May 16, the FWCJUA Audit Committee voted to accept the 2012 FWCJUA audit report by its independent financial auditor, which it also voted to maintain for 2013.
In the report highlights, the auditor concluded that the FWCJUA is expected to receive a “clean” and “unqualified” opinion, given no material weaknesses found as of December 31, 2012. The auditor also reviewed the FWCJUA’s internal controls and similarly found no related deficiencies or material weaknesses for the same period.
The audit considered FWCJUA operations, along with changes in surplus and cash flows for the year, concluding that all were in conformity with accounting practices permitted by the National Association of Insurance Commissioners’ Statements of Statutory Accounting Principles.
There were no revisions or changes in the financial data that was previously presented to the FWCJUA Board in February 2013.
The Committee requested finalization of the audit report for distribution to the Board, as well as for filing with the Florida Department of Financial Services.
In other business, the Committee also heard an update on the status of an ongoing FWCJUA Market Conduct Exam. Committee members received a draft report from FWCJUA Executive Director Laura Torrence that summarized its relevant points. Some language changes are being made and a final draft of the official report is expected in about a month, it was noted.
Cost for the Market Conduct Exam is expected to be just under the budgeted $84,000, at $83,576. The examiner’s initial cost estimate was $89,200.
The draft report showed good results, with only five minor recommendations. As a result, the Market Conduct Exam will not be appealed, because it supports the good job the FWCJUA is doing in serving Florida’s workers’ compensation residual market.
Further, there were no findings indicating that the Audit Committee was not doing its job in any way.
No changes were made to the Committee’s Charter Procedures Checklist, which includes 34 different Committee duties and responsibilities.
With no other business before the Committee, the meeting was adjourned.
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